My mom passed away a little less than a year ago. All her life she was the picture of health: She walked every day and ate super-healthy. The extended family dreaded going there, because they knew there would be no sugary goodies, only healthy (boring) eats. We used to joke and say she was so healthy they’d have to shoot her on the Day of Judgment … because she was never going to die. What took her in the end was breast cancer, and the fact that she didn’t notice it until it was too late. You just can’t account for everything in life, can you? October, as you may know from the pink shoes football players wear this month, is Breast Cancer Awareness Month. As one of the slogans says: “Big or small, let’s save them all!”

Mom was just over 85, and, young as she was when she had to go, she still beat the odds. The Centers for Disease Control and Prevention’s National Center for Health Statistics just published its latest report on expected mortality in the USA. Female infants born in 2012 can expect to live 81.2 years; males, 76.4. This is higher than it’s ever been, largely because of progress in the fight against disease: “The death rates for heart disease and cancer, the two leading causes of death that account for 46.5% of all deaths, have been falling since 1999,” the report says. The chart below shows the age-adjusted death rates for the ten leading causes of death:

Source: CDC/NCHS, National Vital Statistics System, Mortality

Increased awareness of healthy diet and progress in cancer screening and medication have made a noticeable difference in the two leading causes of death. Breast Cancer Awareness Month has played its part in helping to reduce fatalities from the disease.

Now that the odds say you are likely to live longer, you will need more gold to fund those golden years. Whether you learn to invest or use certificates of deposit, the retirement years aren’t called the golden years for nothing — you are going to need more and more gold just to make it through them.

There is more to life than merely surviving, however. As we face more years on this planet, the quality of that life becomes more important. The news there is good, too: Because we’re healthy and productive for longer, more people keep working past the age which used to be reserved for retirement. This chart shows the percentage of people 55 and over that are still active in the labor force:

You can see the percentage of people over 55 participating in the workforce has grown by almost a third in the past 20 years. Even more dramatic is the percentage of workers over 75 that are still active in the workforce has doubled in the past 20 years.

Why are people working later?

Why are more people over the traditional retirement age still working? Isn’t the dream to stop? I’m 63, with many friends and family who are in this age bracket, and most of us still “work,” although the definition of work has definitely, shall we say, loosened up. I looked and asked around to see what our ancient acquaintances do, and why they do it. Here are a few results from the unscientific poll:

1. Medical bills. Some folks encounter unavoidable hardships, like family members with extended (and expensive) illnesses, like Alzheimers and cancer, which deplete the funds they’ve set aside for retirement. One of the reasons life expectancy has increased over the past hundred years is the “quick killers” have been eradicated and the illnesses not yet conquered are expensive and can drag on forever. Someone suggested that’s because drug companies have shifted their research and development (R&D) efforts to drugs which don’t cure things but require, instead, that you to stay on them forever so the companies can make money off you for as long as possible. I don’t know whether that’s just another conspiracy theory or not, but the bottom line is that many people choose to work because medical bills have erased their retirement funds.

2. Debt. Many didn’t pay off their houses and incurred debt for things like cars, toys and other luxuries. Some took on student debt for their grandchildren, only to find — for whatever reason — that those grandchildren have not made scheduled payments, so they have to make those payments. Included in this category is “helping out” with said progeny’s educations, because their parents can’t. Even though this doesn’t involve debt, it involves a new obligation, for which they have to generate an income.

3. Social Security is not enough. Actually, it never was meant to be enough. It was only meant to eliminate abject poverty. Many people, it seems, didn’t provide for their retirement and told themselves they’ll be able to make it on their Social Security sums. When they discovered that Social Security wouldn’t be enough, they found that they would have to keep working. Rick, a friend of ours, had a successful small business, one which they counted on to provide for them in their old age. A recession crushed the business. He and his wife think they’ll have to work the rest of their lives because Social Security is not enough.

Not all 60- and 70-somethings have to work, though. Here are several other reasons I found why they’re not lying on the beach in Belize or playing bridge in a senior center.

4. Travel. My sister-in-law, who lives in Switzerland, says they get a generous state pension over there, but she and her husband love to travel. So, every few months she goes to work for a friend for three days a week, to save up money so she can visit family in South Africa and come visit us every two or three years. Others do the same: They find a part-time or seasonal job to make an extra few bucks so they can travel or do something else they enjoy.

5. People. Our friend Ken is a retired teacher, and his pension is more than adequate. He’s an outgoing, social type of guy and every time we go somewhere together, we laugh all the way there and all the way back. Everybody needs a Ken in their life. However, even though his mom and kids are local, he still feels lonely a lot. So, every summer he goes to work in the garden section of a local Home Depot, for no other reason than to be around people. It’s about four months every year, so he gets his people fix and still has time off to do other fun stuff.

A variation of the previous two is the increase in mobility we’ve seen in the past 50 years. Kids now are spread across the globe, not just across the states. (Our family is spread over four continents and many countries, and we’re by no means unique.) This means that grandparents don’t have nearly the same access to their grandchildren and family members as they used to. That translates into idle time, which, coupled with increased health, increases the temptation to go back to work.

6. Stimulation. Between the media, smartphones and the Internet, we have become used to more and more stimulation bombarding us 24/7. Whether we’re aware of it or not, many of us have become addicted to that. How many find it impossible even to go through a lunch, lasting less than an hour, without several furtive looks at their phone? I work with the general manager of a time share ski resort here in Colorado (oops, busted — I’m still working, too!) and he told me yesterday that they had to add a business center to their resort. Although people go there for time off, it seems they simply can’t do without the electronic tie that binds. Most people now are unable to simply lie anywhere during the day and relax without having to fidget and do something. Many studies have found that remaining intellectually active prolongs a healthy life. So, many go back to work simply to feed the stimulation addiction.

7. Technology. Several of my friends have discovered the Internet allows them to do so much more with their hobbies through social networks, bulletin boards, forums and special interest groups, that they end up turning their hobbies into small businesses. Although they end up working for themselves, they are still working. I’m one of those: I write and do other things. In between my blog writing, I just finished writing my first book on the cycles of the economy. The next project is, of course, finding an agent and publisher to publish it. A younger friend turned his model railroad hobby into a successful national business, all of it run through the Internet.

8. Fun and fulfillment. Another variation of the factors above: New inventions and new discoveries have added significantly to the list of things we can do for fun. Bungee jumping as a form of recreation didn’t exist in the 1950s. Neither did eBay, where many now sell the crafts they love to spend their time making. As technology enables people to make money from their hobbies, more of those hobbies turn into work. The big difference, of course, is they have more fun doing that kind of work because of the fulfillment. The fact they aren’t working for “the boss” doesn’t hurt, either.

9. Habit. If you spend the 40 most important years of your life getting up in the morning, grabbing breakfast and going to work, that’s more than a habit, that’s a lifestyle. For many people, it’s a habit that’s hard to break. The first three weeks that you can sleep in are heaven, but it doesn’t take too long for that novelty to wear off. That’s when it becomes harder and harder to live a life that is radically different from what you have always done. Many people continue working for no other reason than it’s all they know to do. This is particularly prevalent among business owners, who see their businesses as their babies. Rather than selling the business and retiring, they simply keep working.

In summary

Fewer and fewer people desire a passive retirement because they are healthier and there are many more options than were available to our parents. Some have no choice, either because of circumstances or poor planning. The good news is that every day brings more things to do which are both fun and rewarding.

Do you think you will be working later? Do you expect to follow the traditional path of passive retirement or do you plan to keep doing something, either for stimulation or reward, or both? If so, what do you see yourself doing to make the most of your golden years?

Identifying the best CD rates

It is important to think through how best to use a certificate of deposit in your overall financial plan, but it starts with understanding your goals and how a CD can help you reach them. Interest rates change constantly, so having up-to-date rate information is critical to identifying the best CD rates and terms to make the most of your investment. We have made the whole process easier in a convenient page that is updated weekly with the most current interest rates.

Different strategies can help you capitalize on fluctuating interest rates too.
A CD ladder can help you maintain a relatively constant income no matter how current CD rates change. A parallel CD strategy can help you maintain some accessibility to your funds during the term. Richard Barrington’s post can help you understand how to find the right CD but do shop for the highest CD rates and terms regularly to maximize your return. Bookmark this page as well so you can easily come back to our table to check rates and terms as often as you want.

Current certificate of deposit rates

An online account is arguably one of the most convenient ways to manage CDs and, generally speaking, online banks offer higher rates than traditional brick-and-mortar institutions. The following listings of online banks are updated weekly too, and a little more information about each bank is given next to each listing as well. Credit unions and savings associations are also sources of CDs and other deposit accounts.

Barclays is a large, international bank that has been in business for more than 300 years! There is no minimum balance to open a CD and there are no hidden monthly maintenance fees. They even offer a CD calculator to help you decide how best to manage your portfolio. Interest is compounded daily and deposits are FDIC-insured. Of note, Barclays also tied for Best Savings Account by Money Magazine in 2013.

Bank5 Connect offers a CD with a $500 minimum deposit and no monthly maintenance fees. Bank5Connect says its competitive rates are possible because it operates online, but certainly, the degree to which your deposits are insured is also important. Bank5 Connect CDs are insured to their full amount (FDIC-insured to $250,000 and DIF-insured for over $250,000).

If you can commit to a larger minimum deposit, CIT Bank seems prepared to make it worth your while. The CIT Bank jumbo CDs with a $100,000 minimum deposit and no monthly maintenance fees also compound interest daily. CIT Bank lets you manage your accounts online (24/7 access via the Internet) and provides online statements. CIT Bank was founded in 1908 by Henry Ittleson to provide financing for businesses. Throughout the 20th century, CIT expanded its product lines (including CDs, IRAs, and custodial accounts) to consumers and many business sectors and small businesses. Deposits are FDIC-insured.

EverBank made a commitment to always be in the top 5 percent of competitive accounts, so their rates should be attractive no matter when you shop. There is a $5,000 minimum to open an account, but there are no account fees. Interest is compounded daily and deposits are FDIC-insured.

**For first-time account holders, Everbank’s Yield Pledge Money Market Account offers a new account bonus rate of 1.11% for the first year APY for account balances up to $250,000 and an ongoing APY of 0.61%. (Rate as of December 11, 2016.)

Capital One 360 CDs offer standard term lengths with no minimum deposit required. You can decide when to receive the interest earned (monthly, annually, or at the end of the term) and receive automatic renewal reminders. Interest is compounded daily and deposits are FDIC-insured.

CD basics

A certificate of deposit, or CD, is a deposit account that is generally considered a very low-risk investment. You might also hear it described as a time deposit because it is not a liquid asset that can be accessed on demand. Instead, the amounts deposited into a CD are expected to remain untouched for a specific period of time, which is the term of the CD. In exchange, the bank will pay you a fixed rate of interest.Example investment: You put $10,000 in a 5-year certificate of deposit at an interest rate of 1.75%. At the end of five years, with interest compounded daily, you would have $10,914.

Early withdrawal penalty – The full value of the CD (your principal plus the interest earned) is accessible when the term has been reached; however, there is usually a penalty if you withdraw your funds before the end of the term. This means that the bank will keep a portion of the interest earned, which could also cut into the original principal balance if the CD has not accrued enough interest to satisfy the entire penalty yet.

For example, if a depositor wishes to close a one-year CD account after two months but the bank’s policy states that an early withdrawal penalty equal to three months’ interest would be due in that event, then the bank will dip into the depositor’s principal balance to make up for the shortfall between the interest earned and the penalty. Early withdrawal penalties vary from bank to bank, and this is another important item to consider as you shop for the best CD rates and open your new account.

Fixed interest rates – Even though interest rates change regularly, banks usually offer a fixed interest rate that doesn’t fluctuate, allowing you to lock in that particular rate for the entire term of your CD. Banks are willing to fix the interest rate, which is generally higher for certificates of deposit than for most savings accounts, because the funds remain on deposit with the bank untouched for that specific period of time. (In general, the longer the term, the higher the interest rate for a CD.)

FDIC insurance – The Federal Deposit Insurance Corporation insures most certificates of deposit so that the balance of your CD will be paid to you even if the banking institution becomes insolvent for some reason. The standard deposit insurance coverage limit is $250,000 per depositor, but it is important to verify the amount of FDIC insurance that applies to the particular CD accounts you open.

Have you been able to find CD rates that rival these? If so, please add a comment below. Don’t forget to include the details: name of the bank, state, rate, when you opened the account with this rate, and whether you can open the account online or must appear in person.

In a rocky economy, high interest rates are the holy grail of conservative investors, especially those who don’t want to invest in bonds. But in this rocky economy, “high interest” hasn’t really meant much: High-interest savings accounts are returning below two percent!

Get Rich Slowly readers are just like everybody else. A couple of times a week, I get e-mail from somebody looking for higher interest rates, but puzzled about where to find them. So, inspired by a recent article in Consumer Reports Money Adviser, I’m going to run down the top choices for finding high interest rates.

First, I want to remind you all of one thing: Interest rates aren’t likely to rise until the economy improves. Capital One 360 doesn’t hate you. Ally Bank isn’t trying to rip you off. We’re just not in a high-interest-rate environment right now. The government is keeping rates low because they don’t want you to save — they want you to pump your money into the stock market or the general economy. Until things turn around, we won’t be seeing the high interest rates that were around back in 2006.

So where can you go for high interest rates? Let’s look at some options.

High-interest checking accounts

Many small community banks and credit unions offer high-interest rewards checking accounts, which they provide in partnership with companies like BancVue. Different banks have different names for these checking accounts, but they all share similar features. These so-called rewards checking accounts offer high interest rates — if you meet certain requirements.

You usually have to:

Get your monthly statement online, not via snail mail.

Log in to your account at least once a month.

Make a certain number of debit-card purchases each month (usually around 12 — and ATM withdrawals don’t count).

Make at least one electronic transaction per month, such as an automatic payment to the electric company.

If you meet these requirements, you may still find some credit unions and community banks where you can currently earn interest rates of up to about 5 percent on at least a portion of the money in your account. At some banks, you can earn this high interest rate on amounts up to $10,000; at others, it is $25,000. Any money above that cap earns a smaller return. And if you fail to meet the account requirements in any given month, that also triggers the lower interest rate. These rates most likely are offered only to individuals who reside in the local market area of the bank or credit union. (Credit unions require you to join as a member, so be sure to check if you meet the specific membership requirements of the credit union you are interested in.)

How can these banks offer high interest rates on checking accounts? According to the July 2010 issue of Consumer Reports Money Adviser:

Some account requirements — such as banking online and receiving electronic statements — provide cost savings to the financial institutions, while frequent use of debit cards generates fees. Those savings and revenue account for the higher rates.

These accounts are localized, and you will have to search for the best bank in your area. Here in Portland, for example, Advantis Credit Union is offering 1.75% APY on their Fusion Checking (for balances up to $25,000) as long as you meet the monthly requirements (Rate as of December 11, 2016). But you may be able to find higher interest rates elsewhere in the U.S.

Use this list at Money Rates to find a high-interest checking account in your area.

Note:

In the past, Kiplinger’s Personal Finance has named the Charles Schwab High-Yield Investor Checking account its “best checking account of the year.” It currently offers a 0.06% variable APY, and must be tied to a brokerage account. But if a rewards checking account isn’t an option for you, the Schwab account may be a good choice. (Rate as of December 11, 2016)

However, our current research also indicates that some credit unions are offering a higher APY on their rewards checking accounts. It might be worth a look.

High-interest savings accounts

If you don’t want to jump through hoops, a rewards checking account may not be the best option; you may be better off with a high-interest savings account through either a traditional bank or an online bank.

As you search for a high-interest savings account, be sure to look at online banks.Why? Consider the following:

Though many traditional banks (like Bank of America and Wells Fargo) have a growing online presence, they generally have lower interest rates and higher fees than online-only banks like Capital One 360.

Security concerns are the biggest thing that hold people back from banking online. But Consumer Reports Money Adviser claims that online banking may actually be safer than traditional banking because there is no paper trail and because your transactions are digitally encrypted.

In its July 2009 issue, the Consumer Reports Money Adviser stated:

“Online banking, despite a rocky start, is becoming the rule rather than the exception.” The newsletter cites research by Forrester Associates that predicts that 76 percent of American households with Internet access will be banking online by next year.

Here are some online banks to consider:

CIT Bank Savings Account offers a 0.95% APY on deposits of $100-$24,999 and 0.95% APY on any deposit of $25,000 or above. Henry Ittleson founded CIT in 1908 with a mission to provide financing for businesses. CIT has continued to grow, offering financing, lending and insurance to corporations in many different sectors. CIT Bank is an FDIC-insured institution, serving small businesses and consumers with CDs, savings accounts and custodial accounts. (Rate as of December 11, 2016)

Everbank Yield Pledge Money Market offers a 1.11% first-year APY and an ongoing rate of 0.61% APY on their money market account. Everbank is an online-only bank that has been named “Best of the Web” for five consecutive years by Forbes and was also named “Best of the Breed” for online banks by Money Magazine. Everbank requires a $5000 initial deposit requirement. (Rate as of December 11, 2016)

Sallie Mae Money Market Account offers a 0.90% APY with no minimum balance and no monthly fees, plus daily compounded interest. I don’t know much about this account, but it may be worth a closer look. (Rate as of December 11, 2016)

Ally Bank Online Savings Account currently offers a 1.45% APY with no minimum balance and no monthly fees. Ally Bank is the reincarnation of GMAC Bank and was named the best high-yield savings account of 2009 by Kiplinger’s Personal Finance. (Rate as of 09 February 2018)

Kiplinger’s best high-yield savings account of 2008 was FNBO Direct, Online Savings Account which currently offers a 0.95% APY with no minimum balance and no monthly fees. FNBO has also been rated as one of the safest of the major online banks according to a study by BankRate. (Rate as of December 11, 2016)

And, finally, there’s good ol’ Capital One 360, Savings Account which offers 0.75% APY on their Savings Account (with no minimum balance and no monthly fees). This is the bank I chose a couple of years ago. I’ve remained with them even though their rates are no longer near the top of the heap. (Rate as of December 11, 2016)

High-interest savings accounts are easy and safe. You don’t have to worry about meeting any sort of minimum requirements (except perhaps a minimum balance) in order to earn the high interest rate. And many online banks (and some traditional banks, too) will let you open multiple accounts so you can save for individual goals. But high-interest savings accounts have one big drawback: They generally don’t pay as much interest as a rewards checking account or a certificate of deposit.

FAQ: What about money market accounts? “Money market account” is just a marketing term. These accounts are basically souped-up savings accounts that sport higher interest rates and higher minimum balances. Because money market accounts have higher minimum balances, banks have more leeway to use the funds in your account. Other than that, there is not a lot of difference between them and regular savings accounts.

Certificates of deposit

A final option for earning high interest rates is to use a certificate of deposit (also called a CD). CDs are time deposits: You give your money to a bank and promise not to touch it for a specific amount of time. Opening a CD is very much like making a loan to the bank, which can invest the money however it wants during the period you agree to. In general, the longer you let the bank keep your money, the higher the interest rate you’ll receive.

Unlike a savings account, once you put your money into a CD, the interest rate doesn’t change. If, as I did in the CD above, you open a six-month certificate of deposit at 3.50 percent, and then interest rates drop to 1.00 percent (as they did after I opened this account), you still earn 3.50 percent for the entire term.

The catch is that CDs are less liquid than other accounts, meaning you can’t move money in and out of them like you can with a checking or savings account. If you take your money out of a CD before it matures (that is, before the end of the term), you will be docked interest. And in some cases, you may even lose part of your principal!

Note: Here’s a “gotcha” to watch out for with CDs. What happens when your CD matures depends on the arrangements you have made with the bank. Many CDs renew automatically, which may not be what you want. When your term is coming to an end, be sure you know exactly what is going to happen to the money. Don’t be afraid to call and ask.

You may find the best CD rates online, but don’t forget to check your local bank or credit union; my credit union often has competitive rates. You can learn more about certificates of deposit (including a few tips and tricks) in the GRS archives.

Tip: There is another option for earning high interest rates, but it carries greater risk. Consumer finance companies are subprime lenders who borrow money from folks like you and lend it out at high interest rates to people like my friend Michael, who just filed for bankruptcy. You can get a great return on your money through these places, but your deposits are not insured. I’m not willing to put my money in one of these places, but you might be. My neighbor — the real millionaire next door — has a chunk of change at a local finance company, and it’s paying him 4.09 percent. He loves it.

Choosing a high-interest account

So, which of these options is right for you? You are the only one who can make that call. As always, the key is to shop around for an account that fits your current needs.

Choose a high-interest checking account if you use your debit card frequently and feel comfortable ditching paper statements. Once you open the account, pay attention. If you find you are not able to meet the account requirements, don’t hesitate to switch to another option.

Choose a high-interest savings account to build your nest egg slowly but surely without any restrictions on how you can use the money.

Choose a certificate of deposit if you know you won’t need the money for a specific amount of time — or maybe to prevent you from touching the money until you need it. (I like this advice to use parallel CDs or a CD ladder as easy insurance.)

If you want a higher interest rate and are willing to place your money in an uninsured account, explore the world of consumer finance companies. (But be very careful if you do.)

If you are looking for higher potential returns, can stomach more risk, and are familiar with the world of investing, then look at other options, such as bonds or stocks that pay dividends.

You are probably already familiar with my own set-up. High-interest checking accounts don’t work for me. I tried one for about a year and my spending habits just didn’t meet the requirements. I don’t think I once qualified for the high interest rate. Since learning how to use them two years ago, I have used CDs from time to time. Right now, for example, I have the money for our upcoming trip to Europe tucked in a CD, where it’s earning a bit of interest until I need the money. But, as I have mentioned many times, most of my savings is with Capital One 360. (That is not to say that you should choose Capital One 360 — there are plenty of other great options out there.)

As always, I am interested to hear what you folks have to say. Do you concern yourself with finding high interest rates? Do you switch banks to find better rates? What sort of system have you found to balance your need for better yields while still letting you use your money the way you want? (And has anyone had success with personal loan sites like Lending Club?)

Here’s a little twist to the typical Ask the Readers column. Yesterday, I exchanged e-mail with financial writer Liz Weston. She gave me advice for this Friday’s post, and in return she asked the following question:

I’m writing about all the bonuses you can get for opening a savings account or other financial account (like $50 to open an ING checking account, for example). Is this something your readers like to do? How do they find out about these offers? What advice would you give people about the pros and cons of using these incentives?

It’s been a l-o-o-o-n-g time since I wrote about savings accounts around here. Part of that is because there just hasn’t been anything exciting to report. Interest rates are still pretty low, and the difference between banks is minimal.

Lately, however, there’s been a bit of bubbling in the marketplace. I’m not sure if anyone else feels it, but it seems to me like rates are ready to rise. (They could hardly go any lower!) Plus, people have begun to e-mail me again asking about where they should put their money.

So, let’s talk about banking. How do you choose your savings and checking accounts? Is it based just on interest rate? Or do you take special offers into consideration? What offers have you noticed lately? It used to be that most of the high-yield savings accounts offered some sort of incentive to sign up. Maybe it’s because I haven’t been looking, but I haven’t noticed this lately. Have you? What other promotions are out there? And how do you find out about them? What are the pros and cons of pursuing these deals?

For example, my pal Jim over at Bargaineering just wrote about a bank deal earlier today. M&T Bank — which only has branches on the east coast — is offering bonuses of up to $150 $100 for opening a new checking account.

And though it’s not a bonus really, Ally Bank is offering “raise-your-rate CDs“. Open a two-year certificate of deposit with Ally, and if rates increase during those two years, you can request a rate increase (but you can only do this once). Since even the best CD rates are pretty low right now, this is a good way to protect yourself if they start to rise (as they probably will).

What are the drawbacks? In most cases, there aren’t any — if you’re willing to jump through the hoops required to get the bonuses.

For example, rewards checking accounts can offer better returns than even high-yield savings accounts. But to get these returns, you have to use a debit card to make 10 or more point-of-purchase transactions each month, go paperless, and so on. If you don’t do these things, you don’t gain anything. (And, in fact, the company that provides rewards checking accounts to banks and credit unions markets this product as a profit center for the bank, so that should tell you something.)

There is another option putting your savings in peer lending sites such as Lending Club. This works by people requesting personal loans, while others fund them based on criteria provided by Lending Club. You can invest how ever much you want, and Lending Club says they offer an average of 5.6% – 10% returns. This sounds great, but the drawbacks are that its not FDIC insured, its not the safest place to put your money, as some might default on their loans, and you have to continuously re-invest your money if you actually want it to grow.

Certificates of deposit (often simply called CDs), by definition are time deposits. You give your money to the bank and then promise not to touch it for a specific length of time. In general, the longer you agree to let the bank keep your money via a CD investment, the higher the interest rate you will receive.

Editor’s Note: All of the rates discussed in below article are from 2009 and do not reflect the current yields. Please see the GRS pages for savings accounts and CDs for current rates.

If certificates of deposit offer higher returns than a savings account, then why doesn’t everybody use them? The primary reason is that a CD investment is less liquid than a savings account in that you can’t just move money in and out without penalty as you can in a savings account. You can take your money out of a CD before it â€œmatures,â€ but you are docked interest when you do. In fact, it is typical for a bank to penalize the interest amount even if it hasn’t been earned (meaning you could lose part of your principal if you close your CD early).

Anatomy of a CD

I was fortunate to win a $1,000 6-month certificate of deposit from ING Direct recently. (I never win anything!) Looking at it might be instructive:

Reviewing this screenshot, you can see that a certificate of deposit has an initial value (in this case, $1,000), an interest rate (3.50%), and a term (6 months). In other words, this is very much like a loan that I am making to the bank.

You can also see that the bank has an â€œEarly Redemption Policyâ€ that states that I would sacrifice three months’ interest if I chose to redeem this CD early, whether the interest has been earned or not. Because I have held the CD less than a month, I would actually sacrifice part of my principal if I were to close the account now.

When this CD investment matures on April 9th, I will have $1,017.28. Obviously $17.28 isn’t a huge return, but it’s important to remember that interest rates are low right now. (Also consider that if my $10,000 emergency fund were all in CDs, I would earn $172.80 in six months.)

Another important difference to be aware of is that, unlike a savings account, a certificate of deposit ends after a set amount of time. What happens at the end of the term depends on the arrangements you have (or have not) made with your bank. (I explain this further below.)

CD tips and tricks

A certificate of deposit is a great way to put your savings on steroids, so to speak, but there are ways to make them even better. Here are a few tips and tricks that can help you get the most out of your investment.

Use CDs to beat falling interest rates. When the Federal Reserve cuts short-term interest rates, you feel the pinch in your savings account. Certificates of deposit are a great way to buy yourself “protection.”

When you see a rate drop coming, open another CD. For example, the Federal Reserve just cut short-term rates another 0.50 percent last week. I would be shocked if banks didn’t follow suit, lowering the interest on their savings accounts. ING Direct could go as low as 2.25 percent.

When you see an interest drop coming, take some money from your savings account and throw it into a 6- or 12-month certificate of deposit, locking in the higher rate. (My web research hasn’t revealed what causes CD rates to move, but they do not move in lockstep with savings accounts.)

Climb the CD investment ladder. Just as you might use dollar-cost averaging to profit from fluctuations in the stock market, you can use a “CD ladder” to profit from fluctuations in interest rates.

Say you have $5,000 to invest. To build a CD ladder, you would invest the money in CDs with staggered maturation dates:

$1,000 in a one-year CD

$1,000 in a two-year CD

$1,000 in a three-year CD

$1,000 in a four-year CD

$1,000 in a five-year CD

As each CD matures, you immediately invest your money in a new five-year CD, effectively maintaining the one-year stagger, or ladder. You won’t earn the best possible rate of return, but you will earn a good one, and your income will be relatively constant. The CD ladder is also a form of diversification: you’re not betting all your money on one interest rate.

Protect yourself with parallel CDs. One of the biggest risks to your investment in a certificate of deposit is the need for early withdrawal. What if something happens and you need to pull the money out? As we’ve seen, this can be expensive. Nickel at Five Cent Nickel suggests mitigating your risk with parallel certificates of deposit.

Again, assume have $5,000 that you’d like to put into CDs. Instead of opening a single certificate of deposit for the full amount, consider opening multiple CDs. You might open three CDs at once, for example: two $1,000 CDs and one $3,000 CD.

This gives you a buffer in case you need to get at the money early. If you find you need $500, you can break a single $1,000 CD and the rest of your money is safe from penalty.

Beware of auto-renewals. Nicole wrote last week because she was surprised to find that her certificate of deposit at Countrywide had automatically renewed at the maturation date. Many (most?) banks will do this unless you instruct them not to.

If you know you’re ready to pull your money out of a certificate of deposit, be sure to contact your bank to find out the proper procedure for doing so. Nicole found herself locked into another twelve month CD when she needed the money now. If she broke the contract, she would be forced to sacrifice 180 days interest, whether earned or not.

(Note that Nicole’s story had a semi-happy resolution. She knows to speak up when something seems wrong. Countrywide wouldn’t let her out of the CD investment entirely, but “I was able to negotiate a compromise to transfer the money to a 3-month CD, rather than the 12 month CD. Although the interest rate is lower, I will be out in 3 months, which isn’t too bad.”)

Shop around. As with any financial decision, it pays to shop around for CD rates. You may find that your local bank actually offers a better deal on certificates of deposit than the online banks.

For example, my local credit union only offers 0.35% on its regular savings account, but its CD rates are competitive with (and sometimes higher than) ING Direct. Since I keep my checking account at the credit union, it might make sense for me to hold my CDs there. (In this case, however, they’re not high enough to make me switch; I’d rather track everything in one place at ING.)

CDs in practice

I’m new to the certificate of deposit, but I can already see some uses for it. My $10,000 emergency fund, for example, is currently earning 2.75%. I may instead create a series of parallel CDs, as described above.

Also, I’m saving for my Mini Cooper. That money is also earning 2.75%. I’m nowhere close to buying the car, though, so I might as well put it into a certificate of deposit, too.

Though certificates of deposit are new to me, I’m sure that most of you have been using them for years. What tips and tricks can you offer? Do you have favorite sources for CD investments? How do you decide which money to keep there and which to keep in a savings account?

My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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